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Examining 3 stocks that have historically outperformed in February
Last week, Schaeffer's Senior Quantitative Analyst Rocky White took a close look at the January Barometer theory. While he does conclude that January historically sets the tone for the rest of the year, White also demonstrates this trend isn't necessarily helpful for investors -- especially over the long term.
With February just around the corner, I asked White for some information on its historic outperformers. Unlike the January Barometer, this data deals with stocks that have overachieved during a single month -- valuable information for short-term traders. In the chart immediately below (click to enlarge), you'll find a list of 15 stocks that have advanced at least 90% of the time over the past 10 Februaries.
But that's just a starting point. Looking more closely, three of these stocks stand out from a contrarian perspective -- that is, they combine solid technicals with negative sentiment, potentially paving the way for outsized gains as skeptics capitulate. The three we're going to highlight are Agrium Inc. (USA) (NYSE:AGU), Dick's Sporting Goods Inc (NYSE:DKS), and Smith & Wesson Holding Corp (NASDAQ:SWHC).
Agrium Inc. (USA) (NYSE:AGU)
As you can see from the chart above, AGU has been positive in nine of the last 10 Februaries, and averaged a gain of 7.2%. More recently, the stock tacked on a solid 6% last February. What's more, AGU is a long-term standout, adding 21% year-over-year, and at $105.61, is just a chip-shot away from its annual high of $107.68, touched last week.
Nevertheless, the brokerage crowd is decidedly skeptical toward shares of the chemical producer. Thirteen out of 18 covering analysts rate AGU a "hold" or "sell" -- suggesting a round of upgrades could be around the corner.
Dick's Sporting Goods Inc (NYSE:DKS)
DKS has also finished February higher in nine of the past 10 years. On average, the stock has gained 3.5% during the month -- including a respectable 2.2% in 2014. This year, the shares are off to a fast start, advancing more than 11% to trade at $55.14 -- not far from an annual peak of $57.85, tagged last March -- though reports that the company is not for sale could weigh on the security today.
Traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), however, are tilted in a bearish direction. The equity's 50-day put/call volume ratio of 0.87 ranks in the 88th annual percentile. In the same vein, DKS' Schaeffer's put/call open interest ratio (SOIR) of 1.73 is just 1 percentage points from a 12-month peak -- hinting at a healthier-than-usual appetite for short-term puts over calls. While a number of these put traders may be shareholders hedging against unexpected downside, a capitulation among the "vanilla" bears could usher in a fresh wave of buying power.
Smith & Wesson Holding Corp (NASDAQ:SWHC)
Finally, SWHC has rallied in nine of the previous 10 Februaries, with an average return of 14.6%. Last year was a big exception -- when the shares tumbled 12.2% -- but historically, the stock has posted some colossal single-month pops. Most notably, in February 2009, SWHC soared more than 62%. Meanwhile, the firearms security has been crushing it in 2015, tacking on 31% to trade at $12.41.
If this technical trend continues, a short-covering rally could ensue. More than one-fifth of SWHC's float is sold short, which would take roughly two weeks to repurchase, at the stock's average daily trading level.